In wake of scandals, list highlights ethical firms

(Reuters) - After a wave of scandals including wrongful foreclosures on home mortgages, worker suicides at a major Apple Inc supplier in China and the $1.7 billion accounting fraud at Japan’s Olympus Corp, a New York think tank is calling out companies that take the high road.

The Ethisphere Institute’s annual World’s Most Ethical companies list, released on Thursday, found that 145 companies in countries including United States, Great Britain, Japan, Portugal and India stood out as setting a high standard for their employees’ behavior.

American Express Co, General Electric Co and Starbucks Corp — all of which have made the list six years running — are among the companies that stand out as encouraging employees to voice their concerns, said Alex Brigham, executive director of Ethisphere.

“Do you not only know what you’re supposed to do, but if you have a concern around an ethical issue, will you be willing to be report it?” Brigham said. “It’s the latter point which is so important.”

Companies where employees are willing to report problems are also likely to be places where people are quicker to offer solutions, he reasoned.

Ethisphere evaluated about 5,000 global companies, including all members of the Standard & Poor’s 500 index, on reputation, corporate citizenship, culture and other qualities.

Newcomers to the list range from those that focus on social responsibility, including Thrivent Financial for Lutherans and Britain’s Ethical Fruit Co, to Portuguese utility EDP Energias de Portugal and U.S. defense consulting company SRA International Inc.

“We’re six years without them despite a lot of applications,” said Brigham, whose resume includes time as a principal of private equity firm Clayton, Dubilier & Rice and as an analyst at investment bank Lazard Freres. “We see them focusing on some of the rote regulatory requirements and the trading rules, but then we see a culture that’s designed to find loopholes in the rules to find profit.”

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Evidence of that attitude came in a Wednesday op-ed column in the New York Times by a Goldman Sachs Group Inc executive who resigned over concerns that the company had become more interested in making a quick profit at its customers’ expense than helping them to make money. The investment bank said in a statement that the column did not reflect the way it does business.

“Leadership used to be about ideas, setting an example and doing the right thing,” the executive, Greg Smith, wrote in reference to Goldman Sachs’ culture. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.”

Firm enforcement of ethics policies is the only way to convince employees that a company takes such matters seriously, said the head of Realogy, a newcomer to the list.

“You can be a top performer, but if you violate the rules, the punishment will be unforgiving,” said Richard Smith, chief executive officer of Realogy, whose businesses include the Century 21 and Sotheby’s International real estate brokerages.

That applies to flagrant violations and to smaller ones, and managers at Realogy must ensure that all their employees receive ethics training each year to be eligible for their bonuses.

INDIA LEADS; CHINA, RUSSIA LAG

Also on this year’s list are two Indian companies, Tata Steel Ltd and software services exporter Wipro Ltd. No Chinese or Russian companies have yet made the ranking, Brigham said.

While Olympus was never a contender to make the list, Apple was “not so far off,” Brigham said. Following highly publicized worker suicides in 2010 and a blast that killed three people at Chinese supplier Foxconn Technology Co Ltd last year, the maker of the iPhone and iPad has hired teams to audit working conditions at its major suppliers.

Apple CEO Tim Cook is taking “a totally different approach towards ethical supply chain,” Brigham said. “They’re one of the few players that have been very proactive about supplier audits, perhaps no surprise on the heels of the problems they have had.”

Having a reputation for operating in an ethical manner helps a company survive over time, said Jeremy Wilson, senior manager of ethics and corporate policy at network equipment maker Cisco Systems Inc, which has made the list for five of the past six years.

“Anyone can make money in the short term,” Wilson said. “You’ll see companies pop up overnight, and they’ll make money for a couple of quarters and do business unethically. The businesses that stick around for tens or hundreds of years are transparent.”

(Reporting By Scott Malone in Boston; Editing by Lisa Von Ahn)

Corrects first name of Realogy CEO to Richard, not Robert, in paragraph 12